Proposed Rule2024-13864
Defense Federal Acquisition Regulation Supplement: Definition of Material Weakness (DFARS Case 2021-D006)
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 27, 2024
Issuing agencies
Defense DepartmentDefense Acquisition Regulations System
Abstract
DoD is proposing to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to implement a section of the National Defense Authorization Act for Fiscal Year 2021 that defines the term "material weakness" for Government evaluation of contractor business systems. The term "material weakness" replaces the term "significant deficiency."
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 124 (Thursday, June 27, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 124 (Thursday, June 27, 2024)]
[Proposed Rules]
[Pages 53561-53572]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-13864]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Parts 202, 215, 234, 242, 244, 245, and 252
[Docket DARS-2024-0020]
RIN 0750-AL25
Defense Federal Acquisition Regulation Supplement: Definition of
Material Weakness (DFARS Case 2021-D006)
AGENCY: Defense Acquisition Regulations System, Department of Defense
(DoD).
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: DoD is proposing to amend the Defense Federal Acquisition
Regulation Supplement (DFARS) to implement a section of the National
Defense Authorization Act for Fiscal Year 2021 that defines the term
``material weakness'' for Government evaluation of contractor business
systems. The term ``material weakness'' replaces the term ``significant
deficiency.''
DATES: Comments on the proposed rule should be submitted in writing to
the address shown below on or before August 26, 2024, to be considered
in the formation of a final rule.
ADDRESSES: Submit comments identified by DFARS Case 2021-D006, using
either of the following methods:
[cir] Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Search for DFARS Case 2021-D006. Select ``Comment'' and follow the
instructions to submit a comment. Please include ``DFARS Case 2021-
D006'' on any attached documents.
[cir] Email: <a href="/cdn-cgi/l/email-protection#553a26317b31333427261538343c397b383c39"><span class="__cf_email__" data-cfemail="f09f8394de9496918283b09d91999cde9d999c">[email protected]</span></a>. Include DFARS Case 2021-D006 in
the subject line of the message.
Comments received generally will be posted without change to
<a href="https://www.regulations.gov">https://www.regulations.gov</a>, including any personal information
provided. To confirm receipt of your comment(s), please check <a href="https://www.regulations.gov">https://www.regulations.gov</a>, approximately two to three days after submission
to verify posting.
FOR FURTHER INFORMATION CONTACT: Mr. Jon Snyder, telephone 703-945-
5341.
SUPPLEMENTARY INFORMATION:
I. Background
DoD is proposing to amend the DFARS to implement section 806 of the
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2021
(Pub. L. 116-283), which amends section 893 of the NDAA for FY 2011
(Pub. L. 111-383). Section 893 of the NDAA for FY 2011 requires a
program for the improvement of contractor business systems and provides
for DoD approval or disapproval of contractor business systems. Section
806 of the NDAA for FY 2021 defines the term ``material weakness'',
which replaces the term ``significant deficiency.''
II. Discussion and Analysis
This proposed rule replaces the term ``significant deficiency''
with ``material weakness'' in each of the following DFARS contract
clauses: 252.215-7002, Cost Estimating System Requirements; 252.234-
7002, Earned Value Management System; 252.242-7004, Material Management
and Accounting System; 252.242-7005, Contractor Business Systems;
252.242-7006, Accounting System Administration; 252.244-7001,
Contractor Purchasing System Administration-Basic and Alternate I; and
252.245-7003, Contractor Property Management System Administration. The
term ``material weakness'' means a deficiency or combination of
deficiencies in the internal control over information in contractor
business systems, such that there is a reasonable possibility that a
material misstatement of such information will not be prevented, or
detected and corrected, on a timely basis. A reasonable possibility
exists when the likelihood of an event occurring is probable or more
than remote but less than likely.
This definition of ``material weakness'' aligns with generally
accepted auditing standards. This proposed rule will therefore assist
DoD
[[Page 53562]]
to maintain appropriate oversight over contractor business systems by
enabling clear classification of deficiencies according to their
severity, consistent with generally accepted auditing standards.
To conform with this definitional change, this proposed rule also
replaces the term ``significant deficiency'' with the term ``material
weakness'' each place it appears in DFARS parts 215, 234, 242, 244, and
245. Further, this proposed rule adds the word ``underlying'' to
describe ``deficiencies'' in certain parts of the affected DFARS text
to emphasize that material weaknesses are comprised of one or more
deficiencies.
Additionally, this proposed rule adds the full text of definitions
in DFARS parts 215, 234, 242, 244, and 245 in place of references to
definitions located in DFARS clauses. These definitions are
substantially unchanged. This change is intended to assist contracting
officers by minimizing cross-references. The definition of ``material
weakness'' is added at DFARS 202.101, since the term applies to
multiple DFARS parts in the proposed rule.
III. Applicability to Contracts at or Below the Simplified Acquisition
Threshold (SAT), for Commercial Products (Including Commercially
Available Off-the-Shelf (COTS) Items), and for Commercial Services
This proposed rule amends the clauses at DFARS 252.215-7002,
252.234-7002, 252.242-7004, 252.242-7005, 252.242-7006, 252.244-7001--
Basic and Alternate I, and 252.245-7003. However, this proposed rule
does not impose any new requirements on contracts at or below the SAT,
for commercial products, including COTS items, or for commercial
services. Applicability of the clauses to acquisitions at or below the
SAT, to acquisitions of commercial products, including COTS items, and
to acquisitions of commercial services remains unchanged.
IV. Expected Impact of the Rule
Presently, the DFARS includes a definition of ``significant
deficiency'' in the context of DoD evaluation of contractor business
systems. ``Significant deficiency'' is defined as ``a shortcoming in
the system that materially affects the ability of officials of the
Department of Defense to rely upon information produced by the system
that is needed for management purposes.'' This proposed rule replaces
the term ``significant deficiency'' in the DFARS with the term
``material weakness,'' defined as a deficiency or combination of
deficiencies in the internal control over information in contractor
business systems, such that there is a reasonable possibility that a
material misstatement of such information will not be prevented, or
detected and corrected, on a timely basis. A reasonable possibility
exists when the likelihood of an event occurring is probable or more
than remote but less than likely.
This definition of ``material weakness'' provides more detail and
clarity both to DoD and to industry in the context of evaluating
contractor business systems compared to the definition of ``significant
deficiency.'' This definition of ``material weakness'' also aligns with
generally accepted auditing standards. Therefore, this proposed rule
will both create consistency with generally accepted auditing standards
and minimize confusion about the seriousness of deficiencies, which
will aid both DoD and industry.
V. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This is not a significant regulatory action and, therefore, was not
subject to review under section 6(b) of E.O. 12866, Regulatory Planning
and Review, as amended.
VI. Regulatory Flexibility Act
DoD does not expect this proposed rule, when finalized, to have a
significant economic impact on a substantial number of small entities
within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et
seq., because this proposed rule does not require contractors to alter
their existing business practices. However, an initial regulatory
flexibility analysis has been performed and is summarized as follows:
DoD is proposing to amend the Defense Federal Acquisition
Regulation Supplement (DFARS) to implement section 806 of the National
Defense Authorization Act (NDAA) for Fiscal Year (FY) 2021 (Pub. L.
116-283). Section 806 amends section 893 of the NDAA for FY 2011 (Pub.
L. 111-383), which requires a program for the improvement of contractor
business systems and provides for DoD approval or disapproval of
contractor business systems. Section 806 of the NDAA for FY 2021
replaces the term ``significant deficiency'' with ``material weakness''
and defines the term ``material weakness.''
The objective of the rule is to introduce the term ``material
weakness'' for Government evaluation of contractor business systems,
replacing the term ``significant deficiency.'' The definition of
``material weakness'' aligns with generally accepted auditing
standards. This proposed rule will help DoD maintain appropriate
oversight over contractor business systems by enabling clear
classification of deficiencies according to severity. The legal basis
for the rule is section 806 of the NDAA for FY 2021.
The proposed rule may impact small entities that are awarded DoD
contracts. Based on data from the Federal Procurement Data System and
the Electronic Data Access for FY 2021 through FY 2023, DoD estimates
that an average of 5,134 unique small entities are awarded an average
of 22,263 contract actions annually that include one or more relevant
clauses.
This proposed rule does not impose any new reporting, recordkeeping
or other compliance requirements.
This proposed rule does not duplicate, overlap, or conflict with
any other Federal rules.
There are no known alternatives that would accomplish the stated
objectives of the applicable statute.
DoD invites comments from small business concerns and other
interested parties on the expected impact of this proposed rule on
small entities.
DoD will also consider comments from small entities concerning the
existing regulations in subparts affected by this proposed rule in
accordance with 5 U.S.C. 610. Interested parties must submit such
comments separately and should cite 5 U.S.C. 610 (DFARS Case 2021-
D006), in correspondence.
VII. Paperwork Reduction Act
This proposed rule does not contain any information collection
requirements that require the approval of the Office of Management and
Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).
[[Page 53563]]
List of Subjects in 48 CFR Parts 202, 215, 234, 242, 244, 245, and
252
Government procurement.
Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition Regulations System.
Therefore, the Defense Acquisition Regulations System proposes to
amend 48 CFR parts 202, 215, 234, 242, 244, 245, and 252 as follows:
0
1. The authority citation for 48 CFR parts 202, 215, 234, 242, 244,
245, and 252 continues to read as follows:
Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
PART 202--DEFINITIONS OF WORDS AND TERMS
0
2. Amend section 202.101 by adding in alphabetical order the definition
of ``Material weakness'' to read as follows:
202.101 Definitions.
* * * * *
Material weakness means a deficiency or combination of deficiencies
in the internal control over information in contractor business
systems, such that there is a reasonable possibility that a material
misstatement of such information will not be prevented, or detected and
corrected, on a timely basis. A reasonable possibility exists when the
likelihood of an event occurring is--
(1) Probable; or
(2) More than remote but less than likely (section 806 of Pub. L.
116-283).
* * * * *
PART 215--CONTRACTING BY NEGOTIATION
0
3. Amend section 215.470-5-70--
0
a. By revising paragraph (a);
0
b. In paragraph (c)(2)(ii) by removing ``any deficiencies'' and adding
``any weaknesses or deficiencies'' in its place;
0
c. By revising and republishing paragraph (d); and
0
d. In paragraph (e) by removing ``significant deficiencies'' and adding
``material weaknesses'' in its place.
The revisions and republications read as follows:
215.407-5-70 Disclosure, maintenance, and review requirements.
(a) Definitions. As used in this section--
Acceptable estimating system means an estimating system that
complies with the system criteria in paragraph (d) of 252.215-7002,
Cost Estimating System Requirements, and provides for a system that--
(i) Is maintained, reliable, and consistently applied;
(ii) Produces verifiable, supportable, documented, and timely cost
estimates that are an acceptable basis for negotiation of fair and
reasonable prices;
(iii) Is consistent with and integrated with the contractor's
related management systems; and
(iv) Is subject to applicable financial control systems.
Contractor means a business unit as defined in FAR 2.101.
Estimating system means the contractor's policies, procedures, and
practices for budgeting and planning controls and for generating
estimates of costs and other data included in proposals submitted to
customers in the expectation of receiving contract awards. Estimating
system includes the contractor's--
(i) Organizational structure;
(ii) Established lines of authority, duties, and responsibilities;
(iii) Internal controls and managerial reviews;
(iv) Flow of work, coordination, and communication; and
(v) Budgeting, planning, estimating methods, techniques,
accumulation of historical costs, and other analyses used to generate
cost estimates.
* * * * *
(d) Disposition of findings--(1) Reporting of findings. The auditor
shall document findings and recommendations in a report to the
contracting officer. If the auditor identifies any material weaknesses,
the report shall describe the underlying deficiencies in sufficient
detail to allow the contracting officer to understand the weaknesses
and deficiencies.
(2) Initial determination. (i) The contracting officer shall review
all findings and recommendations and, if there are no material
weaknesses, shall promptly notify the contractor, in writing, that the
contractor's estimating system is acceptable and approved; or
(ii) If the contracting officer finds that there are one or more
material weaknesses due to the contractor's failure to meet one or more
of the estimating system criteria in the clause at 252.215-7002, the
contracting officer shall--
(A) Promptly make an initial written determination on any material
weaknesses and notify the contractor, in writing, providing a
description of each material weakness in sufficient detail to allow the
contractor to understand the deficiency (see PGI 215.407-5-70(d)(2));
(B) Request the contractor to respond in writing to the initial
determination within 30 days; and
(C) Promptly evaluate the contractor's responses to the initial
determination, in consultation with the auditor or functional
specialist, and make a final determination.
(3) Final determination. (i) The contracting officer shall make a
final determination and notify the contractor in writing that--
(A) The contractor's estimating system is acceptable and approved,
and no material weaknesses remain; or
(B) Material weaknesses remain. The notice shall identify any
remaining material weaknesses and indicate the adequacy of any proposed
or completed corrective action. The contracting officer shall--
(1) Request that the contractor, within 45 days of receipt of the
final determination, either correct the deficiencies or submit an
acceptable corrective action plan showing milestones and actions to
eliminate the weaknesses;
(2) Disapprove the system in accordance with the clause at 252.215-
7002; and
(3) Withhold payments in accordance with the clause at 252.242-
7005, Contractor Business Systems, if the clause is included in the
contract.
(ii) Follow the procedures relating to monitoring a contractor's
corrective action and the correction of material weaknesses in PGI
215.407-5-70(d)(3).
* * * * *
PART 234--MAJOR SYSTEM ACQUISITION
234.001 [Redesignated as 234.001-70]
0
4. Redesignate section 234.001 as section 234.001-70.
0
5. Revise newly redesignated section 234.001-70 to read as follows:
234.001-70 Definitions.
As used in this part--
Acceptable earned value management system means an earned value
management system that generally complies with system criteria in
paragraph (b) of 252.234-7002, Earned Value Management System.
Earned value management system means an earned value management
system that complies with the earned value management system guidelines
in the ANSI/EIA-748.
Production of major defense acquisition program means the
production and deployment of a major system that is intended to achieve
an operational capability that satisfies mission needs, or an activity
otherwise defined as Milestone C under Department of Defense
Instruction 5000.02 or related authorities.
0
6. Amend section 234.201--
[[Page 53564]]
0
a. In paragraph (5)(ii) by removing ``any deficiencies'' and adding
``any weaknesses or deficiencies'' in its place;
0
b. By revising and republishing paragraph (7); and
0
c. In paragraph (8) by removing ``significant deficiencies'' and adding
``material weaknesses'' in its place.
The revision and republication reads as follows:
234.201 Policy.
* * * * *
(7) Disposition of findings--(i) Reporting of findings. The
functional specialist or auditor shall document findings and
recommendations in a report to the contracting officer. If the
functional specialist or auditor identifies any material weaknesses in
the contractor's earned value management system, the report shall
describe the weaknesses or deficiencies in sufficient detail to allow
the contracting officer to understand the weaknesses or deficiencies.
(ii) Initial determination. (A) The contracting officer shall
review all findings and recommendations and, if there are no material
weaknesses, shall promptly notify the contractor, in writing, that the
contractor's earned value management system is acceptable and approved;
or
(B) If the contracting officer finds that there are one or more
material weaknesses due to the contractor's failure to meet one or more
of the earned value management system criteria in the clause at
252.234-7002, the contracting officer shall--
(1) Promptly make an initial written determination of any material
weaknesses and notify the contractor, in writing, providing a
description of each material weakness in sufficient detail to allow the
contractor to understand the weaknesses (see PGI 234.201(7)(ii));
(2) Request the contractor to respond, in writing, to the initial
determination within 30 days; and
(3) Evaluate the contractor's response to the initial
determination, in consultation with the auditor or functional
specialist, and make a final determination.
(iii) Final determination. (A) The contracting officer shall make a
final determination and notify the contractor, in writing, that--
(1) The contractor's earned value management system is acceptable
and approved, and no material weaknesses remain; or
(2) Material weaknesses remain. The notice shall identify any
remaining material weaknesses and indicate the adequacy of any proposed
or completed corrective action. The contracting officer shall--
(i) Request that the contractor, within 45 days of receipt of the
final determination, either correct the deficiencies or submit an
acceptable corrective action plan showing milestones and actions to
eliminate the weaknesses;
(ii) Disapprove the system in accordance with the clause at
252.234-7002 when initial validation is not successfully completed
within the timeframe approved by the contracting officer, or the
contracting officer determines that the existing earned value
management system contains one or more material weaknesses in high-risk
guidelines in ANSI/EIA-748 standards (guidelines 1, 3, 6, 7, 8, 9, 10,
12, 16, 21, 23, 26, 27, 28, 30, or 32). When the contracting officer
determines that the existing earned value management system contains
one or more material weaknesses in one or more of the remaining 16
guidelines in ANSI/EIA-748 standards, the contracting officer shall use
discretion to disapprove the system based on input received from
functional specialists and the auditor; and
(iii) Withhold payments in accordance with the clause at 252.242-
7005, Contractor Business Systems, if the clause is included in the
contract.
(B) Follow the procedures relating to monitoring a contractor's
corrective action and the correction of material weaknesses at PGI
234.201(7)(iii).
* * * * *
PART 242--CONTRACT ADMINISTRATION AND AUDIT SERVICES
242.302 [Amended]
0
7. Amend section 242.302 in paragraph (a)(7) by removing
``deficiencies'' and adding ``weaknesses or deficiencies'' in its
place.
0
8. Revise and republish section 242.7000 to read as follows:
242.7000 Contractor business system deficiencies.
(a) Definitions. As used in this subpart--
Acceptable contractor business systems means contractor business
systems that comply with the terms and conditions of the applicable
business system clauses listed in the definition of contractor business
systems in this section.
Contractor business systems means--
(i) Accounting system, if the contract includes the clause at
252.242-7006, Accounting System Administration;
(ii) Earned value management system, if the contract includes the
clause at 252.234-7002, Earned Value Management System;
(iii) Estimating system, if the contract includes the clause at
252.215-7002, Cost Estimating System Requirements;
(iv) Material management and accounting system, if the contract
includes the clause at 252.242-7004, Material Management and Accounting
System;
(v) Property management system, if the contract includes the clause
at 252.245-7003, Contractor Property Management System Administration;
and
(vi) Purchasing system, if the contract includes the clause at
252.244-7001, Contractor Purchasing System Administration.
Covered contract means a contract that is subject to the Cost
Accounting Standards under 41 U.S.C. chapter 15, as implemented in
regulations found at 48 CFR 9903.201-1 (10 U.S.C. 3841 note prec., as
amended by section 816 of Pub. L. 112-81).
(b) Determination to withhold payments. If the contracting officer
makes a final determination to disapprove a contractor's business
system in accordance with the clause at 252.242-7005, Contractor
Business Systems, the contracting officer shall--
(1) In accordance with agency procedures, identify one or more
covered contracts containing the clause at 252.242-7005 from which
payments will be withheld. When identifying the covered contracts from
which to withhold payments, the contracting officer shall ensure that
the total amount of payment withholding under 252.242-7005 does not
exceed 10 percent of progress payments, performance-based payments, and
interim payments under cost-reimbursement, labor-hour, and time-and-
materials contracts billed under each of the identified covered
contracts. Similarly, the contracting officer shall ensure that the
total amount of payment withholding under the clause at 252.242-7005
for each business system does not exceed 5 percent of progress
payments, performance-based payments, and interim payments under cost-
reimbursement, labor-hour, and time-and-materials contracts billed
under each of the identified covered contracts. The contracting officer
has the sole discretion to identify the covered contracts from which to
withhold payments.
(2) Promptly notify the contractor, in writing, of the contracting
officer's determination to implement payment withholding in accordance
with the clause at 252.242-7005. The notice of payment withholding
shall be included
[[Page 53565]]
in the contracting officer's written final determination for the
contractor business system and shall inform the contractor that--
(i) Payments shall be withheld from the contract or contracts
identified in the written determination in accordance with the clause
at 252.242-7005, until the contracting officer determines that there
are no remaining material weaknesses; and
(ii) The contracting officer reserves the right to take other
actions within the terms and conditions of the contract.
(3) Provide a copy of the determination to all contracting officers
administering the selected contracts from which payments will be
withheld. The contracting officer shall also provide a copy of the
determination to the auditor; payment office; affected contracting
officers at the buying activities; and cognizant contracting officers
in contract administration activities.
(c) Monitoring contractor's corrective action. The contracting
officer, in consultation with the auditor or functional specialist,
shall monitor the contractor's progress in correcting the weaknesses.
The contracting officer shall notify the contractor of any decision to
decrease or increase the amount of payment withholding in accordance
with the clause at 252.242-7005.
(d) Correction of material weaknesses. (1) If the contractor
notifies the contracting officer that the contractor has corrected the
material weaknesses, the contracting officer shall request the auditor
or functional specialist to review the correction to verify that the
weaknesses have been corrected. If, after receipt of verification, the
contracting officer determines that the contractor has corrected all
material weaknesses as directed by the contracting officer's final
determination, the contracting officer shall discontinue the
withholding of payments, release any payments previously withheld, and
approve the system, unless other material weaknesses remain.
(2) Prior to the receipt of verification, the contracting officer
may discontinue withholding payments pending receipt of verification,
and release any payments previously withheld, if the contractor submits
evidence that the material weaknesses have been corrected, and the
contracting officer, in consultation with the auditor or functional
specialist, determines that there is a reasonable expectation that the
corrective actions have been implemented and are expected to correct
the material weaknesses.
(3) Within 90 days of receipt of the contractor notification that
the contractor has corrected the material weaknesses, the contracting
officer shall--
(i) Make a determination that--
(A) The contractor has corrected all material weaknesses as
directed by the contracting officer's final determination in accordance
with paragraph (d)(1) of this section;
(B) There is a reasonable expectation that the corrective actions
have been implemented in accordance with paragraph (d)(2) of this
section; or
(C) The contractor has not corrected all material weaknesses as
directed by the contracting officer's final determination in accordance
with paragraph (d)(1) of this section, or there is not a reasonable
expectation that the corrective actions have been implemented in
accordance with paragraph (d)(2) of this section; or
(ii) Reduce withholding directly related to the material weaknesses
covered under the corrective action plan by at least 50 percent of the
amount being withheld from progress payments and performance-based
payments, and direct the contractor, in writing, to reduce the
percentage withheld on interim cost vouchers by at least 50 percent,
until the contracting officer makes a determination in accordance with
paragraph (d)(3)(i) of this section.
(4) If, at any time, the contracting officer determines that the
contractor has failed to correct the material weaknesses identified in
the contractor's notification, the contracting officer will continue,
reinstate, or increase withholding from progress payments and
performance-based payments, and direct the contractor, in writing, to
continue, reinstate, or increase the percentage withheld on interim
cost vouchers to the percentage initially withheld, until the
contracting officer determines that the contractor has corrected all
material weaknesses as directed by the contracting officer's final
determination.
(e) Sample formats. For sample formats for written notifications of
contracting officer determinations to initiate payment withholding,
reduce payment withholding, and discontinue payment withholding in
accordance with the clause at 252.242-7005, see PGI 242.7000.
0
9. Revise section 242.7201 to read as follows:
242.7201 Definitions.
As used in this subpart--
Acceptable material management and accounting system means a
material management and accounting system that generally complies with
the system criteria in paragraph (d) of the clause at 252.242-7004,
Material Management and Accounting System.
Material management and accounting system (MMAS) means the
contractor's system or systems for planning, controlling, and
accounting for the acquisition, use, issuing, and disposition of
material. Material management and accounting systems may be manual or
automated. They may be stand-alone systems, or they may be integrated
with planning, engineering, estimating, purchasing, inventory,
accounting, or other systems.
Valid time-phased requirements means material that is--
(1) Needed to fulfill the production plan, including reasonable
quantities for scrap, shrinkage, yield, etc.; and
(2) Charged or billed to contracts or other cost objectives in a
manner consistent with the need to fulfill the production plan.
242.7202 [Amended]
0
10. Amend section 242.7202 in paragraph (b)(2) by removing ``any
deficiencies'' and adding ``any weaknesses or deficiencies'' in its
place.
0
11. Amend section 242.7203 by--
0
a. Revising and republishing paragraph (c); and
0
b. Revising paragraph (d).
The revisions and republication read as follows:
242.7203 Review procedures.
* * * * *
(c) Disposition of findings--(1) Reporting of findings. The auditor
or functional specialist shall document findings and recommendations in
a report to the contracting officer. If the auditor or functional
specialist identifies any material weaknesses, the report shall
describe the weaknesses or deficiencies in sufficient detail to allow
the contracting officer to understand the weaknesses or deficiencies.
(2) Initial determination. (i) The contracting officer shall review
findings and recommendations and, if there are no material weaknesses,
shall promptly notify the contractor, in writing, that the contractor's
MMAS is acceptable and approved; or
(ii) If the contracting officer finds that there are one or more
material weaknesses due to the contractor's failure to meet one or more
of the MMAS system criteria in the clause at 252.242-7004, the
contracting officer shall--
(A) Promptly make an initial written determination on any material
weaknesses and notify the contractor, in writing, providing a
description of each
[[Page 53566]]
material weakness in sufficient detail to allow the contractor to
understand the deficiency;
(B) Request the contractor to respond, in writing, to the initial
determination within 30 days; and
(C) Promptly evaluate the contractor's response to the initial
determination in consultation with the auditor or functional specialist
and make a final determination (see PGI 242.7203(c)(2)).
(3) Final determination. (i) The ACO shall make a final
determination and notify the contractor that--
(A) The contractor's MMAS is acceptable and approved, and no
deficiencies remain; or
(B) Material weaknesses remain. The notice shall identify any
remaining material weaknesses and indicate the adequacy of any proposed
or completed corrective action. The contracting officer shall--
(1) Request that the contractor, within 45 days of receipt of the
final determination, either correct the weaknesses or submit an
acceptable corrective action plan showing milestones and actions to
eliminate the weaknesses;
(2) Disapprove the system in accordance with the clause at 252.242-
7004; and
(3) Withhold payments in accordance with the clause at 252.242-
7005, Contractor Business Systems, if the clause is included in the
contract.
(ii) Follow the procedures relating to monitoring a contractor's
corrective action and the correction of material weaknesses in PGI
242.7203(c)(3).
(d) System approval. The contracting officer shall promptly approve
a previously disapproved MMAS and notify the contractor when the
contracting officer determines that there are no remaining material
weaknesses.
* * * * *
0
12. Revise section 242.7501 to read as follows:
242.7501 Definitions.
As used in this subpart--
Acceptable accounting system means a system that complies with the
system criteria in paragraph (c) of the clause at 252.242-7006,
Accounting System Administration, to provide reasonable assurance
that--
(1) Applicable laws and regulations are complied with;
(2) The accounting system and cost data are reliable;
(3) Risk of misallocations and mischarges are minimized; and
(4) Contract allocations and charges are consistent with billing
procedures.
Accounting system means the contractor's system or systems for
accounting methods, procedures, and controls established to gather,
record, classify, analyze, summarize, interpret, and present accurate
and timely financial data for reporting in compliance with applicable
laws, regulations, and management decisions, and may include subsystems
for specific areas such as indirect and other direct costs,
compensation, billing, labor, and general information technology.
0
13. Amend section 242.7502--
0
a. In paragraph (b)(2) by removing ``any deficiencies'' and adding
``any weaknesses or deficiencies'' in its place;
0
b. By revising and republishing paragraph (d);
0
c. By revising paragraph (e);
0
d. In the paragraph (g) heading and paragraphs (g)(1) and (g)(2)(i) by
removing ``accounting system'';
0
e. In paragraph (g)(2)(iii) by removing ``accounting system's''; and
0
f. In paragraph (g)(3) introductory text by removing ``an accounting
system deficiency'' and adding ``a deficiency'' in its place.
The revisions and republication read as follows:
242.7502 Policy.
* * * * *
(d) Disposition of findings--(1) Reporting of findings. The auditor
shall document findings and recommendations in a report to the
contracting officer. If the auditor identifies any material weakness,
the report shall describe the weaknesses or deficiencies in sufficient
detail to allow the contracting officer to understand the weaknesses or
deficiencies. Follow the procedures at PGI 242.7502 for reporting of
deficiencies.
(2) Initial determination. (i) The contracting officer shall review
findings and recommendations and, if there are no material weaknesses,
shall promptly notify the contractor, in writing, that the contractor's
accounting system is acceptable and approved; or
(ii) If the contracting officer finds that there are one or more
material weaknesses due to the contractor's failure to meet one or more
of the accounting system criteria in the clause at 252.242-7006, the
contracting officer shall--
(A) Promptly make an initial written determination on any material
weaknesses and notify the contractor, in writing, providing a
description of each material weakness in sufficient detail to allow the
contractor to understand the weakness (see PGI 242.7502(d)(2));
(B) Request the contractor to respond, in writing, to the initial
determination within 30 days; and
(C) Promptly evaluate the contractor's response to the initial
determination, in consultation with the auditor or functional
specialist, and make a final determination.
(3) Final determination. (i) The contracting officer shall make a
final determination and notify the contractor, in writing, that--
(A) The contractor's accounting system is acceptable and approved,
and no material weaknesses remain; or
(B) Material weaknesses remain. The notice shall identify any
remaining material weaknesses and indicate the adequacy of any proposed
or completed corrective action. The contracting officer shall--
(1) Request that the contractor, within 45 days of receipt of the
final determination, either correct the weaknesses or submit an
acceptable corrective action plan showing milestones and actions to
eliminate the weaknesses;
(2) Make a determination to disapprove the system in accordance
with the clause at 252.242-7006; and
(3) Withhold payments in accordance with the clause at 252.242-
7005, Contractor Business Systems, if the clause is included in the
contract.
(ii) Follow the procedures relating to monitoring a contractor's
corrective action and the correction of material weaknesses in PGI
242.7502(d)(3).
(e) System approval. The contracting officer shall promptly approve
a previously disapproved accounting system and notify the contractor
when the contracting officer determines that there are no remaining
material weaknesses.
* * * * *
PART 244--SUBCONTRACTING POLICIES AND PROCEDURES
0
14. Revise section 244.101 to read as follows:
244.101 Definitions.
As used in this subpart--
Acceptable purchasing system means a purchasing system that
complies with the system criteria in paragraph (c) of the clause at
252.244-7001.
Purchasing system means the contractor's system or systems for
purchasing and subcontracting, including make-or-buy decisions, the
selection of vendors, analysis of quoted prices, negotiation of prices
with vendors, placing and administering of orders, and expediting
delivery of materials.
0
15. Amend section 244.305-70--
0
a. In the introductory text be removing ``subsection'' and adding
``section'' in its place;
0
b. By revising and republishing paragraph (c);
[[Page 53567]]
0
c. By revising paragraph (d);
0
d. In the paragraph (f) heading and paragraphs (f)(1) and (f)(2)(i) by
removing ``purchasing system'';
0
e. In paragraph (f)(2)(iii) by removing ``purchasing system's''; and
0
f. In paragraph (f)(3) introductory text by removing ``purchasing
system''.
The revisions and republication read as follows:
244.305-70 Policy.
* * * * *
(c) Disposition of findings--(1) Reporting of findings. The
purchasing system analyst or auditor shall document findings and
recommendations in a report to the contracting officer. If the auditor
or purchasing system analyst identifies any material weaknesses, the
report shall describe the underlying deficiencies in sufficient detail
to allow the contracting officer to understand the weaknesses and
deficiencies.
(2) Initial determination. (i) The contracting officer shall review
all findings and recommendations and, if there are no material
weaknesses, shall promptly notify the contractor that the contractor's
purchasing system is acceptable and approved; or
(ii) If the contracting officer finds that there are one or more
material weaknesses due to the contractor's failure to meet one or more
of the purchasing system criteria in the clause at 252.244-7001, the
contracting officer shall--
(A) Promptly make an initial written determination on any material
weaknesses and notify the contractor, in writing, providing a
description of each material weakness in sufficient detail to allow the
contractor to understand the weakness (see PGI 244.305-70(c)(2));
(B) Request the contractor to respond, in writing, to the initial
determination within 30 days; and
(C) Evaluate the contractor's response to the initial determination
in consultation with the auditor or purchasing system analyst and make
a final determination.
(3) Final determination. (i) The contracting officer shall make a
final determination and notify the contractor, in writing, that--
(A) The contractor's purchasing system is acceptable and approved,
and no material weaknesses remain; or
(B) Material weaknesses remain. The notice shall identify any
remaining material weaknesses and indicate the adequacy of any proposed
or completed corrective action. The contracting officer shall--
(1) Request that the contractor, within 45 days of receipt of the
final determination, either correct the weaknesses or submit an
acceptable corrective action plan showing milestones and actions to
eliminate the weaknesses;
(2) Disapprove the system in accordance with the clause at 252.244-
7001; and
(3) Withhold payments in accordance with the clause at 252.242-
7005, Contractor Business Systems, if the clause is included in the
contract.
(ii) Follow the procedures relating to monitoring a contractor's
corrective action and the correction of material weaknesses in PGI
244.305-70(c)(3).
(d) System approval. The contracting officer shall promptly approve
a previously disapproved purchasing system and notify the contractor
when the contracting officer determines that there are no remaining
material weaknesses.
* * * * *
PART 245--GOVERNMENT PROPERTY
0
16. Amend section 245.105--
0
a. By revising paragraph (a);
0
b. In paragraph (b)(2) by removing ``any deficiencies'' and adding
``any weaknesses or deficiencies'' in its place;
0
c. By revising and republishing paragraph (d); and
0
d. In paragraph (e) by removing ``significant deficiencies'' and adding
``material weaknesses'' in its place.
The revisions and republication read as follows:
245.105 Contractors' property management system compliance.
(a) Definitions. As used in this subpart--
Acceptable property management system means a property system that
complies with the system criteria in paragraph (c) of the clause at
252.245-7003, Contractor Property Management Administration.
Property management system means the contractor's system or systems
for managing and controlling Government property.
* * * * *
(d) Disposition of findings--(1) Reporting of findings. The
property administrator shall document findings and recommendations in a
report to the contracting officer. If the property administrator
identifies any material weaknesses, the report shall describe the
underlying deficiencies in sufficient detail to allow the contracting
officer to understand the weaknesses or deficiencies.
(2) Initial determination. (i) The contracting officer shall review
findings and recommendations and, if there are no material weaknesses,
shall promptly notify the contractor, in writing, that the contractor's
property management system is acceptable and approved; or
(ii) If the contracting officer finds that there are one or more
material weaknesses due to the contractor's failure to meet one or more
of the property management system criteria in the clause at 252.245-
7003, the contracting officer shall--
(A) Promptly make an initial written determination on any material
weaknesses and notify the contractor, in writing, providing a
description of each material weakness in sufficient detail to allow the
contractor to understand the weakness (see PGI 245.105(d)(2));
(B) Request the contractor to respond, in writing, to the initial
determination within 30 days; and
(C) Evaluate the contractor's response to the initial
determination, in consultation with the property administrator, and
make a final determination.
(3) Final determination. (i) The contracting officer shall make a
final determination and notify the contractor, in writing, that--
(A) The contractor's property management system is acceptable and
approved, and no material weaknesses remain; or
(B) Material weaknesses remain. The notice shall identify any
remaining material weaknesses and indicate the adequacy of any proposed
or completed corrective action. The contracting officer shall--
(1) Request that the contractor, within 45 days of receipt of the
final determination, either correct the weaknesses or submit an
acceptable corrective action plan showing milestones and actions to
eliminate the weaknesses;
(2) Disapprove the system in accordance with the clause at 252.245-
7003; and
(3) Withhold payments in accordance with the clause at 252.242-
7005, Contractor Business Systems, if the clause is included in the
contract.
(ii) Follow the procedures relating to monitoring a contractor's
corrective action and the correction of material weaknesses in PGI
245.105(d)(3).
* * * * *
PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
17. Amend section 252.215-7002--
0
a. By revising the section heading and clause date;
0
b. In paragraph (a) by--
0
i. Adding in alphabetical order the definition of ``Material
weakness''; and
[[Page 53568]]
0
ii. Removing the definition of ``Significant deficiency'';
0
c. By revising and republishing paragraph (e); and
0
d. By revising paragraph (f).
The addition, revisions, and republication read as follows:
252.215-7002 Cost Estimating System Requirements.
* * * * *
Cost Estimating System Requirements (Date)
(a) * * *
Material weakness means a deficiency or combination of deficiencies
in the internal control over information in contractor business
systems, such that there is a reasonable possibility that a material
misstatement of such information will not be prevented, or detected and
corrected, on a timely basis. A reasonable possibility exists when the
likelihood of an event occurring is--
(1) Probable; or
(2) More than remote but less than likely (section 806 of Pub. L.
116-283).
* * * * *
(e) Material weaknesses. (1) The Contracting Officer will provide
an initial determination to the Contractor, in writing, of any material
weaknesses. The initial determination will describe the underlying
deficiency in sufficient detail to allow the Contractor to understand
the weakness or deficiency.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
material weaknesses in the Contractor's estimating system. If the
Contractor disagrees with the initial determination, the Contractor
shall state, in writing, its rationale for disagreeing.
(3) The Contracting Officer will evaluate the Contractor's response
and notify the Contractor, in writing, of the Contracting Officer's
final determination concerning--
(i) Remaining material weaknesses;
(ii) The adequacy of any proposed or completed corrective action;
and
(iii) System disapproval, if the Contracting Officer determines
that one or more material weaknesses remain.
(f) If the Contractor receives the Contracting Officer's final
determination of material weaknesses, the Contractor shall, within 45
days of receipt of the final determination, either correct the material
weaknesses or submit an acceptable corrective action plan showing
milestones and actions to eliminate the material weaknesses.
* * * * *
0
18. Amend section 252.234-7002--
0
a. By revising the clause date;
0
b. In paragraph (a) by--
0
i. Adding in alphabetical order the definition of ``Material
weakness''; and
0
ii. Removing the definition of ``Significant deficiency'';
0
c. By revising and republishing paragraph (i); and
0
d. By adding a heading to paragraph (k).
The additions, revisions, and republication read as follows:
252.234-7002 Earned Value Management System.
* * * * *
Earned Value Management System (Date)
(a) * * *
Material weakness means a deficiency or combination of deficiencies
in the internal control over information in contractor business
systems, such that there is a reasonable possibility that a material
misstatement of such information will not be prevented, or detected and
corrected, on a timely basis. A reasonable possibility exists when the
likelihood of an event occurring is--
(1) Probable; or
(2) More than remote but less than likely (section 806 of Pub. L.
116-283).
* * * * *
(i) Material weaknesses. (1) The Contracting Officer will provide
an initial determination to the Contractor, in writing, of any material
weaknesses. The initial determination will describe the underlying
deficiency in sufficient detail to allow the Contractor to understand
the weakness or deficiency.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
material weaknesses in the Contractor's EVMS. If the Contractor
disagrees with the initial determination, the Contractor shall state,
in writing, its rationale for disagreeing.
(3) The Contracting Officer will evaluate the Contractor's response
and notify the Contractor, in writing, of the Contracting Officer's
final determination concerning--
(i) Remaining material weaknesses;
(ii) The adequacy of any proposed or completed corrective action;
(iii) System noncompliance, when the Contractor's existing EVMS
fails to comply with the earned value management system guidelines in
the ANSI/EIA-748; and
(iv) System disapproval, if initial EVMS validation is not
successfully completed within the timeframe approved by the Contracting
Officer, or if the Contracting Officer determines that the Contractor's
earned value management system contains one or more material weaknesses
in high-risk guidelines in ANSI/EIA-748 standards (guidelines 1, 3, 6,
7, 8, 9, 10, 12, 16, 21, 23, 26, 27, 28, 30, or 32). When the
Contracting Officer determines that the existing earned value
management system contains one or more material weaknesses in one or
more of the remaining 16 guidelines in ANSI/EIA-748 standards, the
Contracting Officer will use discretion to disapprove the system based
on input received from functional specialists and the auditor.
(4) If the Contractor receives the Contracting Officer's final
determination of material weaknesses, the Contractor shall, within 45
days of receipt of the final determination, either correct the material
weaknesses or submit an acceptable corrective action plan showing
milestones and actions to eliminate the material weaknesses.
* * * * *
(k) Subcontracts. * * *
* * * * *
0
19. Amend section 252.242-7004 by--
0
a. Revising the clause date and paragraph (a);
0
b. Revising and republishing paragraph (e); and
0
c. Revising paragraph (f).
The revisions and republication read as follows:
252.242-7004 Material Management and Accounting System.
* * * * *
Material Management and Accounting System (Date)
(a) Definitions. As used in this clause--
Acceptable material management and accounting system means a
material management and accounting system that generally complies with
the system criteria in paragraph (d) of this clause.
Contractor means a business unit as defined in Federal Acquisition
Regulation (FAR) 2.101.
Material management and accounting system (MMAS) means the
Contractor's system or systems for planning, controlling, and
accounting for the acquisition, use, issuing, and disposition of
material. Material management and accounting systems may be manual or
automated. They may be stand-alone systems, or they may be integrated
with planning, engineering, estimating, purchasing, inventory,
accounting, or other systems.
Material weakness means a deficiency or combination of deficiencies
in the internal control over information in
[[Page 53569]]
contractor business systems, such that there is a reasonable
possibility that a material misstatement of such information will not
be prevented, or detected and corrected, on a timely basis. A
reasonable possibility exists when the likelihood of an event occurring
is--
(1) Probable; or
(2) More than remote but less than likely (section 806 of Pub. L.
116-283).
Valid time-phased requirements means material that is--
(1) Needed to fulfill the production plan, including reasonable
quantities for scrap, shrinkage, yield, etc.; and
(2) Charged or billed to contracts or other cost objectives in a
manner consistent with the need to fulfill the production plan.
* * * * *
(e) Material weaknesses. (1) The Contracting Officer will provide
an initial determination to the Contractor, in writing, of any material
weaknesses. The initial determination will describe the underlying
deficiencies in sufficient detail to allow the Contractor to understand
the weaknesses or deficiencies.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
material weaknesses in the Contractor's MMAS. If the Contractor
disagrees with the initial determination, the Contractor shall state,
in writing, its rationale for disagreeing.
(3) The Contracting Officer will evaluate the Contractor's response
and notify the Contractor, in writing, of the Contracting Officer's
final determination concerning--
(i) Remaining material weaknesses;
(ii) The adequacy of any proposed or completed corrective action;
and
(iii) System disapproval if the Contracting Officer determines that
one or more material weaknesses remain.
(f) If the Contractor receives the Contracting Officer's final
determination of material weaknesses, the Contractor shall, within 45
days of receipt of the final determination, either correct the material
weaknesses or submit an acceptable corrective action plan showing
milestones and actions to eliminate the material weaknesses.
* * * * *
0
20. Amend section 252.242-7005--
0
a. By revising the section heading and clause date;
0
b. In paragraph (b) by--
0
i. Adding in alphabetical order the definition of ``Material
weakness''; and
0
ii. Removing the definition of ``Significant deficiency''; and
0
c. By revising paragraphs (d), (e)(1) and (2), (e)(3)(i), and (f).
The addition and revisions read as follows:
252.242-7005 Contractor Business Systems.
* * * * *
Contractor Business Systems (Date)
* * * * *
(b) * * *
Material weakness means a deficiency or combination of deficiencies
in the internal control over information in contractor business
systems, such that there is a reasonable possibility that a material
misstatement of such information will not be prevented, or detected and
corrected, on a timely basis. A reasonable possibility exists when the
likelihood of an event occurring is--
(1) Probable; or
(2) More than remote but less than likely (section 806 of Pub. L.
116-283).
* * * * *
(d) Material weaknesses. (1) The Contractor shall respond, in
writing, within 30 days to an initial determination that there are one
or more material weaknesses in one or more of the Contractor's business
systems.
(2) The Contracting Officer will evaluate the Contractor's response
and notify the Contractor, in writing, of the final determination as to
whether the Contractor's business system contains material weaknesses.
If the Contracting Officer determines that the Contractor's business
system contains material weaknesses, the final determination will
include a notice to withhold payments.
(e) * * *
(1) If the Contracting Officer issues the final determination with
a notice to withhold payments for material weaknesses in a contractor
business system required under this contract, the Contracting Officer
will withhold 5 percent of amounts due from progress payments and
performance-based payments, and direct the Contractor, in writing, to
withhold 5 percent from its billings on interim cost vouchers on cost-
reimbursement, labor-hour, and time-and-materials contracts until the
Contracting Officer has determined that the Contractor has corrected
all material weaknesses as directed by the Contracting Officer's final
determination. The Contractor shall, within 45 days of receipt of the
notice, either correct the weaknesses or submit an acceptable
corrective action plan showing milestones and actions to eliminate the
weaknesses.
(2) If the Contractor submits an acceptable corrective action plan
within 45 days of receipt of a notice of the Contracting Officer's
intent to withhold payments, and the Contracting Officer, in
consultation with the auditor or functional specialist, determines that
the Contractor is effectively implementing such plan, the Contracting
Officer will reduce withholding directly related to the material
weaknesses covered under the corrective action plan, to 2 percent from
progress payments and performance-based payments, and direct the
Contractor, in writing, to reduce the percentage withheld on interim
cost vouchers to 2 percent until the Contracting Officer determines the
Contractor has corrected all material weaknesses as directed by the
Contracting Officer's final determination. However, if at any time, the
Contracting Officer determines that the Contractor has failed to follow
the accepted corrective action plan, the Contracting Officer will
increase withholding from progress payments and performance-based
payments, and direct the Contractor, in writing, to increase the
percentage withheld on interim cost vouchers to the percentage
initially withheld, until the Contracting Officer determines that the
Contractor has corrected all material weaknesses as directed by the
Contracting Officer's final determination.
(3) * * *
(i) The total percentage of payments withheld on amounts due under
each progress payment, performance-based payment, or interim cost
voucher on this contract shall not exceed--
(A) Five percent for one or more material weaknesses in any single
contractor business system; and
(B) Ten percent for material weaknesses in multiple contractor
business systems.
* * * * *
(f) Correction of weaknesses. (1) The Contractor shall notify the
Contracting Officer, in writing, when the Contractor has corrected the
business system's weaknesses.
(2) Once the Contractor has notified the Contracting Officer that
all weaknesses have been corrected, the Contracting Officer will take
one of the following actions:
[[Page 53570]]
(i) If the Contracting Officer determines that the Contractor has
corrected all material weaknesses as directed by the Contracting
Officer's final determination, the Contracting Officer will, as
appropriate, discontinue the withholding of progress payments and
performance-based payments, and direct the Contractor, in writing, to
discontinue the payment withholding from billings on interim cost
vouchers under this contract associated with the Contracting Officer's
final determination, and authorize the Contractor to bill for any
monies previously withheld that are not also being withheld due to
other material weaknesses. Any payment withholding under this contract
due to other material weaknesses will remain in effect until the
Contracting Officer determines that those material weaknesses are
corrected.
(ii) If the Contracting Officer determines that the Contractor
still has material weaknesses, the Contracting Officer will continue
the withholding of progress payments and performance-based payments,
and the Contractor shall continue withholding amounts from its billings
on interim cost vouchers in accordance with paragraph (e) of this
clause, and not bill for any monies previously withheld.
(iii) If the Contracting Officer determines, based on the evidence
submitted by the Contractor, that there is a reasonable expectation
that the corrective actions have been implemented and are expected to
correct the material weaknesses, the Contracting Officer will
discontinue withholding payments, release any payments previously
withheld directly related to the material weaknesses identified in the
Contractor notification, direct the Contractor, in writing, to
discontinue the payment withholding from billings on interim cost
vouchers associated with the Contracting Officer's final determination,
and authorize the Contractor to bill for any monies previously
withheld.
(iv) If, within 90 days of receipt of the Contractor notification
that the Contractor has corrected the material weaknesses, the
Contracting Officer has not made a determination in accordance with
paragraph (f)(2)(i), (ii), or (iii) of this clause, the Contracting
Officer will reduce withholding directly related to the material
weaknesses identified in the Contractor notification by at least 50
percent of the amount being withheld from progress payments and
performance-based payments, and direct the Contractor, in writing, to
reduce the payment withholding from billings on interim cost vouchers
directly related to the material weaknesses identified in the
Contractor notification by a specified percentage that is at least 50
percent, but not authorize the Contractor to bill for any monies
previously withheld until the Contracting Officer makes a determination
in accordance with paragraph (f)(2)(i), (ii), or (iii) of this clause.
(v) At any time after the Contracting Officer reduces or
discontinues the withholding of progress payments and performance-based
payments, or directs the Contractor to reduce or discontinue the
payment withholding from billings on interim cost vouchers under this
contract, if the Contracting Officer determines that the Contractor has
failed to correct the material weaknesses identified in the
Contractor's notification, the Contracting Officer will reinstate or
increase withholding from progress payments and performance-based
payments, and direct the Contractor, in writing, to reinstate or
increase the percentage withheld on interim cost vouchers to the
percentage initially withheld, until the Contracting Officer determines
that the Contractor has corrected all material weaknesses as directed
by the Contracting Officer's final determination.
* * * * *
0
21. Amend section 252.242-7006 by--
0
a. Revising the section heading, clause date, and paragraph (a);
0
b. Revising and republishing paragraph (d); and
0
c. Revising paragraph (e).
The revisions and republication read as follows:
252.242-7006 Accounting System Administration.
* * * * *
Accounting System Administration (Date)
(a) Definitions. As used in this clause--
Acceptable accounting system means a system that complies with the
system criteria in paragraph (c) of this clause to provide reasonable
assurance that--
(1) Applicable laws and regulations are complied with;
(2) The accounting system and cost data are reliable;
(3) Risk of misallocations and mischarges are minimized; and
(4) Contract allocations and charges are consistent with billing
procedures.
Accounting system means the Contractor's system or systems for
accounting methods, procedures, and controls established to gather,
record, classify, analyze, summarize, interpret, and present accurate
and timely financial data for reporting in compliance with applicable
laws, regulations, and management decisions, and may include subsystems
for specific areas such as indirect and other direct costs,
compensation, billing, labor, and general information technology.
Material weakness means a deficiency or combination of deficiencies
in the internal control over information in contractor business
systems, such that there is a reasonable possibility that a material
misstatement of such information will not be prevented, or detected and
corrected, on a timely basis. A reasonable possibility exists when the
likelihood of an event occurring is--
(1) Probable; or
(2) More than remote but less than likely (section 806 of Pub. L.
116-283).
* * * * *
(d) Material weaknesses. (1) The Contracting Officer will provide
an initial determination to the Contractor, in writing, of any material
weaknesses. The initial determination will describe the underlying
deficiency in sufficient detail to allow the Contractor to understand
the weakness or deficiency.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
material weaknesses in the Contractor's accounting system. If the
Contractor disagrees with the initial determination, the Contractor
shall state, in writing, its rationale for disagreeing.
(3) The Contracting Officer will evaluate the Contractor's response
and notify the Contractor, in writing, of the Contracting Officer's
final determination concerning--
(i) Remaining material weaknesses;
(ii) The adequacy of any proposed or completed corrective action;
and
(iii) System disapproval, if the Contracting Officer determines
that one or more material weaknesses remain.
(e) If the Contractor receives the Contracting Officer's final
determination of material weaknesses, the Contractor shall, within 45
days of receipt of the final determination, either correct the material
weaknesses or submit an acceptable corrective action plan showing
milestones and actions to eliminate the material weaknesses.
* * * * *
0
22. Amend section 252.244-7001--
0
a. By revising the section heading and clause date;
0
b. In paragraph (a) by--
0
i. Adding in alphabetical order the definition of ``Material
weakness''; and
0
ii. Removing the definition of ``Significant deficiency'';
0
c. By revising and republishing paragraph (d);
[[Page 53571]]
0
d. By revising paragraph (e); and
0
e. In Alternate I--
0
i. By revising the clause date;
0
ii. In paragraph (a)--
0
A. By adding in alphabetical order the definition of ``Material
weakness''; and
0
B. By removing the definition of ``Significant deficiency'';
0
iii. By revising and republishing paragraph (d); and
0
iv. By revising paragraph (e).
The additions, revisions, and republications read as follows:
252.244-7001 Contractor Purchasing System Administration.
* * * * *
Contractor Purchasing System Administration--Basic (Date)
(a) * * *
Material weakness means a deficiency or combination of deficiencies
in the internal control over information in contractor business
systems, such that there is a reasonable possibility that a material
misstatement of such information will not be prevented, or detected and
corrected, on a timely basis. A reasonable possibility exists when the
likelihood of an event occurring is--
(1) Probable; or
(2) More than remote but less than likely (section 806 of Pub. L.
116-283).
* * * * *
(d) Material weaknesses. (1) The Contracting Officer will provide
notification of initial determination to the Contractor, in writing, of
any material weaknesses. The initial determination will describe the
underlying deficiency in sufficient detail to allow the Contractor to
understand the weakness or deficiency.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
material weaknesses in the Contractor's purchasing system. If the
Contractor disagrees with the initial determination, the Contractor
shall state, in writing, its rationale for disagreeing.
(3) The Contracting Officer will evaluate the Contractor's response
and notify the Contractor, in writing, of the Contracting Officer's
final determination concerning--
(i) Remaining material weaknesses;
(ii) The adequacy of any proposed or completed corrective action;
and
(iii) System disapproval, if the Contracting Officer determines
that one or more material weaknesses remain.
(e) If the Contractor receives the Contracting Officer's final
determination of material weaknesses, the Contractor shall, within 45
days of receipt of the final determination, either correct the material
weaknesses or submit an acceptable corrective action plan showing
milestones and actions to eliminate the weaknesses.
* * * * *
Alternate I. * * *
Contractor Purchasing System Administration--Alternate I (Date)
* * * * *
(a) * * *
Material weakness means a deficiency or combination of deficiencies
in the internal control over information in contractor business
systems, such that there is a reasonable possibility that a material
misstatement of such information will not be prevented, or detected and
corrected, on a timely basis. A reasonable possibility exists when the
likelihood of an event occurring is--
(1) Probable; or
(2) More than remote but less than likely (section 806 of Pub. L.
116-283).
* * * * *
(d) Material weaknesses. (1) The Contracting Officer will provide
notification of initial determination to the Contractor, in writing, of
any material weaknesses. The initial determination will describe the
underlying deficiency in sufficient detail to allow the Contractor to
understand the weaknesses or deficiency.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
material weaknesses in the Contractor's purchasing system. If the
Contractor disagrees with the initial determination, the Contractor
shall state, in writing, its rationale for disagreeing.
(3) The Contracting Officer will evaluate the Contractor's response
and notify the Contractor, in writing, of the Contracting Officer's
final determination concerning--
(i) Remaining material weaknesses;
(ii) The adequacy of any proposed or completed corrective action;
and
(iii) System disapproval, if the Contracting Officer determines
that one or more material weaknesses remain.
(e) If the Contractor receives the Contracting Officer's final
determination of material weaknesses, the Contractor shall, within 45
days of receipt of the final determination, either correct the material
weaknesses or submit an acceptable corrective action plan showing
milestones and actions to eliminate the weaknesses.
* * * * *
0
23. Amend section 252.245-7003--
0
a. By revising the clause date;
0
b. In paragraph (a) by--
0
i. Adding in alphabetical order the definition of ``Material
weakness''; and
0
ii. Removing the definition of ``Significant deficiency'';
0
c. By revising and republishing paragraph (d); and
0
d. By revising paragraph (e).
The addition, revisions, and republication read as follows:
252.245-7003 Contractor Property Management System Administration.
* * * * *
Contractor Property Management System Administration (Date)
(a) * * *
Material weakness means a deficiency or combination of deficiencies
in the internal control over information in contractor business
systems, such that there is a reasonable possibility that a material
misstatement of such information will not be prevented, or detected and
corrected, on a timely basis. A reasonable possibility exists when the
likelihood of an event occurring is--
(1) Probable; or
(2) More than remote but less than likely (section 806 of Pub. L.
116-283).
* * * * *
(d) Material weaknesses. (1) The Contracting Officer will provide
an initial determination to the Contractor, in writing, of any material
weaknesses. The initial determination will describe the underlying
deficiency in sufficient detail to allow the Contractor to understand
the weaknesses or deficiency.
(2) The Contractor shall respond within 30 days to a written
initial determination from the Contracting Officer that identifies
material weaknesses in the Contractor's property management system. If
the Contractor disagrees with the initial determination, the Contractor
shall state, in writing, its rationale for disagreeing.
(3) The Contracting Officer will evaluate the Contractor's response
and notify the Contractor, in writing, of the Contracting Officer's
final determination concerning--
(i) Remaining material weaknesses;
(ii) The adequacy of any proposed or completed corrective action;
and
(iii) System disapproval, if the Contracting Officer determines
that one or more material weaknesses remain.
(e) If the Contractor receives the Contracting Officer's final
determination of material weaknesses, the Contractor shall, within 45
days of receipt of the final determination, either correct the material
weaknesses or submit an
[[Page 53572]]
acceptable corrective action plan showing milestones and actions to
eliminate the material weaknesses.
* * * * *
[FR Doc. 2024-13864 Filed 6-26-24; 8:45 am]
BILLING CODE 6001-FR-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on June 27, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.